We suspected that the same policy change had been made by the US & the UK, but was simply yet to be discovered, buried in the website of a Federal agency.

We suspected correctly…

In the introduction, the resolution informs readers that the FDIC and the Bank of England have been working together to formulate the new bail-in model for future bank failures:

The Federal Deposit Insurance Corporation (FDIC) and the Bank of England—together with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Financial Services Authority— have been working to develop resolution strategies for the failure of globally active, systemically important, financial institutions (SIFIs or G-SIFIs) with significant operations on both sides of the Atlantic.

The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability. They should also assign losses to shareholders and unsecured creditors in the group, thereby avoiding the need for a bailout by taxpayers.

The joint US/UK resolution states that depositor haircuts are already legal in the UK thanks to the 2009 UK Banking Act:

In the U.K., the strategy has been developed on the basis of the powers provided by the U.K. Banking Act 2009 and in anticipation of the further powers that will be provided by the European Union Recovery and Resolution Directive and the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking. Such a strategy would involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency.

And that the legal authority has already been given in the US buried in Dodd-Frank:

It should be stressed that the application of such a strategy can be achieved only within a legislative framework that provides authorities with key resolution powers. The FSB Key Attributes have established a crucial framework for the implementation of an effective set of resolution powers and practices into national regimes. In the U.S., these powers had already become available under the Dodd-Frank Act. In the U.K., the additional powers needed to enhance the existing resolution framework established under the Banking Act 2009(the Banking Act) are expected to be fully provided by the European Commission’s proposals for a European Union Recovery and Resolution Directive (RRD) and through the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking (ICB), enhancing the existing

resolution framework established under the Banking Act.

The development of effective resolution strategies is being carried out in anticipation of such legislation.

The unsecured debt holders can expect that their claims would be written down to reflect any losses that shareholders cannot cover, with some converted partly into equity in order to provide sufficient capital to return the sound businesses of the G-SIFI to private sector operation. Sound subsidiaries (domestic and foreign) would be kept open and operating, thereby limiting contagion effects and cross-border complications. In both countries, whether during execution of the resolution or thereafter, restructuring measures may be taken, especially in the parts of the business causing the distress, including shrinking those businesses, breaking them into smaller entities, and/or liquidating or closing certain operations.

The resolution states that while the US would prefer large financial institutions be resolved through ordinary bankruptcy, depositor wealth confiscation will be pursued in the case of a systemically important institution (i.e. BOA, JPMorgan, Goldman Sachs, etc):

As demonstrated by the Title I requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the U.S. would prefer that large

financial organizations be resolvable through ordinary bankruptcy. However, the U.S. bankruptcy process may not be able to handle the failure of a systemic financial institution without significant disruption to the financial system.

The resolution authority states that shareholders would lose all value prior to depositor scalpings:

Under the strategies currently being developed by the U.S. and the U.K., the resolution authority could intervene at the top of the group. Culpable senior management of

the parent and operating businesses would be removed, and losses would be apportioned to shareholders and unsecured creditors. In all likelihood, shareholders would lose all value and unsecured creditors should thus expect that their claims would be written down to reflect any losses that shareholders did not cover.

Under both the U.S. and U.K. approaches, legal safeguards ensure that creditors recover no less than they would under insolvency.

The banksters plans for a bail-in resolution agency include investment banks and clearing houses as well as deposit bearing institutions!!!

The introduction of a statutory bail-in resolution tool (the power to writedown or convert into equity the liabilities of a failing firm) under the RRD is critical to implementing a whole group resolution of U.K. firms in a way that reduces the risks to financial stability. A bail-in tool would enable the U.K. authorities to recapitalize an institution by allocating losses to its shareholders and unsecured creditors, thereby avoiding the need to split or transfer operating entities. The provisions in the RRD that

enable the resolution authority to impose a temporary stay on the exercise of termination rights by counterparties in the event of a firm’s entry into resolution (in other words, preventing counterparties from terminating their contractual arrangements with a firm solely as a result of the firm’s entry into resolution) will be needed to ensure the bail-in is executed in an orderly manner.

The existing Banking Act does not cover nondeposit-taking financial firms, notably investment banks and financial market infrastructures (clearing houses in particular), the failure of which, in many cases, would also have significant financial stability consequences. The Banking Act also has limitations with regard to the application of resolution tools to financial holding companies. The U.K. is in the process of expanding the scope of the Banking Act to include these firms. This is expected to be achieved through the introduction of the U.K. Financial Services Bill, which is due to complete its passage through Parliament by the end of this year.

Exactly as played out with the Cyprus template, depositors will receive equity shares in the new, bailed-in institution:

The remaining claims of the debt holders will be converted, in part, into equity claims that will serve to capitalize the new operations. The debt holders may also receive convertible subordinated debt in the new operations. This debt would provide a cushion against further losses in the firm, as it can be converted into equity if needed. Any

remaining claims of the debt holders could be transferred to the new operations in the form of new unsecured debt.

Exactly as played out with the Cyprus template, depositor funds will be stolen in whatever quantities are required to keep the TBTF zombie bank afloat:

Once the recapitalization requirement has been determined, an announcement of the final terms of the bail-in would be made to the previous security holders.

This announcement would include full details of the write-down and/or conversion.

Debt securities would be cancelled or written down in order to return the firm to solvency by reducing the level of outstanding liabilities. The losses would be applied up the firm’s capital structure in a process that respects the existing creditor hierarchy underinsolvency law. The value of any loans from the parent to its operating subsidiaries would be written down in a manner that ensures that the subsidiaries remain solvent and viable.

For now (until the rules are changed when a greater need for funds arises, funds will only be stolen from depositors with more than the FDIC insured $100,000 in their account:

Insofar as a bail-in provides for continuity in operations and preserves value, losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation.

Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

In order for the resolution to work, the banksters state that the public must be convinced their deposits are safe, when in fact they are subject to bail-in confiscation:

Similarly, because the group remains solvent, retail or corporate depositors should not have an incentive to “run” from the firm under resolution insofar as their banking

arrangements, transacted at the operating company level, remain unaffected. In order to achieve this, the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.

0.1% interest on savings deposits with the now VERY REAL THREAT OF COMPLETE CONFISCATION in the US & UK doesn’t sound like such a great return to us.

The Fed appears to be making a calculated play to force savings out of the TBTF banks and into stocks and real estate, a move that is likely to backfire spectacularly.